Could Loan Forgiveness Increase Startups?

Dealing with student loans and other debts can hurt startup plans in a variety of ways. It’s not fun trying to decide whether you should put money into the business or maybe make an extra large payment toward a student loan. Though there are incredibly successful college dropouts who didn’t have big debts like Steve Jobs, college provides invaluable contacts and resources most people can’t pass up.

Thankfully, the government and a new startup accelerator are offering help. Now you have a more few options for running a new business while putting your debts behind you.

Private Option

Gen Y Capital’s accelerator program will help entrepreneurs pay their student loans for up to three years. Not only that, they get hands-on mentorship, space to live and set up the business, access to college courses and exclusive membership in the exclusive Young Entrepreneurship Council. The complete program of support takes the accelerator concept to a whole new level. The simple online applications requires basic details, which should encourage more people to apply. Application are being accepted now and winners will be chosen in January 2012.

Why It Will Help: Some accelerators provide a little money to participants, but the Gen Y Capital program is intended to remove as many barriers as possible for entrepreneurs. Founder Scott Gerber, who created the incredibly supportive program, has years of experience founding many startups. He’s an investor and a big believer in the power of startups. After all, he wrote the nontraditional work bible Never Get a “Real” Job. His first-hand experience in the startup trenches helped him design the accelerator’s structure.

Government Option

President Obama wants to revamp the federal loan program so that more people qualify for the Income Based Repayment (IBR) plan. The IBR plan was initially for people who had high debts and low incomes. The formula will change so that monthly federal loan payments can’t exceed 10% of income, instead of the usual 15%, according to Time. Those who make less than $20,000 a year won’t have to pay anything at all.

Even better news: this change is scheduled to start in 2012. There are over $400 billion dollars in federal loans right now and the current economic climate means defaults and late payments will keep accumulating unless more people use the IBR plan.

Why It Will Help: The large number of federal loans means many people will benefit from the new initiative. This will bring down the federal loan default rate, which has increased due to the recession, and it will make Obama look more business-friendly during the 2012 election year.

Most of us were encouraged to go to school and take on debt no matter what the price, but the recession means we need to come up with creative solutions to the increasing cost of college. The continued combination of high tuition and low young adult employment will only hurt startup innovation. Gen Y Capital’s accelerator and the government’s loan changes are a great start in the mission to support startups. My hope is that the private sector and government will continue to develop ways to reduce student loans and other debts for entrepreneurs.

Joanna Ebizie earned a bachelor’s degree from the University of Texas at Austin and an MBA from St. Edward’s University. Her experience includes writing traditional and online written content in a variety of industries such as finance and technology. Recent articles have appeared in The Business Finance Store and Rock Solid Finance. Find her online here.